Opinion
653459/14
08-17-2018
MSMC RESIDENTIAL REALTY, LLC, a New York limited liability company, Plaintiff, v. Akbarali HIMANI, Defendant.
Kestenbaum, Dannenberg & Klein, LLP, 260 Madison Avenue, 17th Floor, New York, NY 10016, By: Michael H. Klein, Esq., Attorney for Plaintiff Law Office of Lee Nuwesra, 60 E 42nd St, Ste 1733, New York, NY 10165, By: Lee Nuwesra, Esq., Attorney for Defendant
Kestenbaum, Dannenberg & Klein, LLP, 260 Madison Avenue, 17th Floor, New York, NY 10016, By: Michael H. Klein, Esq., Attorney for Plaintiff
Law Office of Lee Nuwesra, 60 E 42nd St, Ste 1733, New York, NY 10165, By: Lee Nuwesra, Esq., Attorney for Defendant
Robert R. Reed, J.
Motion sequence numbers 008 and 009 are consolidated for disposition.
Plaintiff seeks rent arrears, real estate taxes, and water charges from the guarantor of a lease. Plaintiff moves for summary judgment on the guaranty and for reimbursement of the attorneys' fees, costs, and expenses incurred in this action, and seeks leave to conform the pleadings in its amended complaint to the evidence (motion sequence number 009). Defendant guarantor moves for summary judgment dismissing the amended complaint and for attorneys' fees and costs (motion sequence number 008).
Plaintiff MSMC Residential Realty LLC, landlord and owner, and nonparty CP at Madison Avenue (CP), tenant, entered into a commercial lease in August 2010. Defendant Akbarali Himani is the president of CP, which operates a restaurant. Defendant signed a guaranty of payment and performance, guaranteeing CP's performance under the lease.
In January 2013, plaintiff commenced a nonpayment proceeding against CP. The petition demanded $144,299.97 in rent owing from February 2011 through December 2012. In March 2013, the parties stipulated that CP would pay use and occupancy in the amount of $15,000 per month beginning in April 2013, that such payment would be sent to petitioner's counsel, and that such payment was without prejudice regarding the amount of rent owed under the lease. On August 23, 2013, the court awarded plaintiff a judgment of possession for the premises with a warrant of eviction to issue forthwith and a judgment of $234,299.97. On October 4, 2013, the court reduced the judgment amount to $204,299.97 to reflect previously unaccounted for payments of rent.
CP posted a bond in the amount of $204,299.97 and appealed the August 2013 decision. The appellate term granted CP's motion to stay enforcement of the money judgment and the warrant of eviction pending the appeal. While the stay was in force, the court in the nonpayment proceeding issued a decision on December 18, 2013. This decision stated that petitioner had proven its prima facie case as to the rent amount demanded in the petition, that, as there was no formally requested new demand for rent, the court was constrained to use the demand amount, that plaintiff was awarded $196,607.97, which was the demand amount, plus rent due from January through August, minus payments made as of August, that the money judgment of $234,299.97 was vacated, and that CP was ordered to pay use and occupancy in the lease amount of $15,931.50, pending determination of the appeal.
The August 2013 decision in the nonpayment proceeding was affirmed and, in February 2015, the bonding company paid plaintiff the bond amount, and CP paid plaintiff $26,661.01 in interest.
On March 12, 2015, plaintiff and CP entered into a stipulation of settlement, providing that: 1) CP would pay plaintiff: $100,000 in attorneys' fees, $50,647.89 for rent for January, February and March 2015, at a monthly rate of $16,882.63, and the same monthly rent for April through September 2015; 2) the stipulation constituted the parties' entire agreement with respect to attorneys' fees and rent due through September 2015, except as provided herein to the contrary; 3) CP agreed that, except as provided herein, no claim by plaintiff for rent and additional rent under the lease was subject to the stipulation, and plaintiff reserved all of its rights and remedies thereto; and 4) the guaranty continued in full force. Defendant signed the stipulation on behalf of CP and as guarantor.
Because the December 18, 2013 decision that reduced plaintiff's award was issued during the appellate stay, plaintiff argues that it is a nullity. Plaintiff did not move for relief from that decision or appeal it, and this court cannot change it.
On a motion for summary judgment, the moving party must demonstrate entitlement to judgment as a matter of law and the absence of triable issues of fact, and the failure to make such a showing will result in the denial of the motion, regardless of the sufficiency of the opposing papers ( Corprew v. City of New York , 106 AD3d 524, 524-525 [1st Dept 2013] ; TrizecHahn, Inc. v. Timbil Chiller Maintenance Corp. , 92 AD3d 409, 410 [1st Dept 2012] ).
A landlord demonstrates its prima facie entitlement to summary judgment on the issue of liability by establishing that the guarantor signed an absolute and unconditional guaranty of a commercial lease, that the tenant was in arrears in payment of base rent and additional rent, the amount of the underlying debt, and that defendant failed to perform under the guaranty (see International Plaza Assoc., L.P. v. Lacher, 104 AD3d 578, 579 [1st Dept 2013] ; Davimos v. Halle, 35 AD3d 270, 272 [1st Dept 2006] ). The guarantor in this case "absolutely, unconditionally and irrevocably guarantees to Landlord" payment of all fixed and additional rent payable by tenant (guaranty, ¶ 1). The guarantor is liable for CP's debts to plaintiff. However, plaintiff fails to fails to establish the amount of the underlying debt.
The lease provides that fixed rent is the rent due under the lease and that additional rent means the water charges, the real estate taxes, and the fees charged for late payment of the rent. The complaint asks for $181,083.14 in fixed rent and additional rent. On the instant motion, plaintiff seeks $517,833.77, along with interest, costs, and disbursements. This is how the sum of $517,833.77 breaks down: 1) $76,908.20 in fixed rent arrears (the arrears amount is the difference between the rent that CP paid and the fixed rent; 2) $310,031.53, the late fee on the rent arrears; 3) $9,010.60 in real estate taxes; 4) $450.53, the late fee on the real estate taxes; 5) $82,644.77 in water charges; and 6) $4,132.44, the late fee on the water charges.
If the tenant fails to pay any fixed or additional rent within 5 days after its due date, it shall pay a late fee of $.05 for each $1.00 which remains unpaid after such period to compensate the landlord for additional expense in processing such late payment (lease, ¶ 41A). The tenant agrees to pay for water consumed as shown on the water meter (lease, ¶ 28). If the taxes payable in any tax year exceed the landlord's basic tax liability, the tenant shall pay to landlord as additional rent, an amount equal to the tenant's proportionate share of the amount by which taxes payable in such tax year exceed the landlord's basic tax liability (lease, ¶ 43B).
Plaintiff submits Andrew Hargadon's affidavits and deposition transcript. Hargadon, plaintiff's property manager, states that he is familiar with plaintiff's accounting records relating to CP's rent history and that he personally prepared the exhibits showing CP's debts. Exhibit 3 covers the time from April 2013 through May 2017, listing the fixed rent for each month, the rent paid by CP for each month, and the late charge put on almost every payment.
Plaintiff must provide documentary evidence of the indebtedness or an explanation of how it is calculated (see HSBC Bank USA v. IPO, LLC, 290 AD2d 246 [1st Dept 2002] ; Wamco XVII v. Chestnut Estates Dev. Corp ., 251 AD2d 888, 889 [3d Dept 1998] ). Plaintiff provides neither. Hargadon's affidavit includes a conclusory statement that the total amount due includes late fees. He does not explain the method of calculating the late fees.
Exhibit 3 does not show when CP made any of the payments or when plaintiff received them. There is no proof that the payments were late. The chart shows that many payments in 2014 and 2015 were less than the fixed rent. According to plaintiff, a "late" payment is one not paid in the correct amount. Hargadon's deposition testimony shows that when a payment was not in the proper amount, the entire payment was considered a late payment and a late charge applied to it. According to the lease, the late charge should be applied only to the portion of the payment that was late. For instance, during a time when the rent was $15,931.50, CP paid $15,000 a month on time, and plaintiff charged a late fee on $15,931.50. The late fee should have been charged only on $931.50, the amount that was late.
Exhibit 3 shows that most of the payments in 2016 and 2017 were in the correct amounts. These payments are not shown to be late, yet it seems that late fees were applied to them. The first item on the chart shows that the late fee for April 2013 is $3,182.70. During his deposition, Hargadon said that this late fee was actually the combined late fees for January, February, March, and April 2013, and that the rent due for those months was $63,654, but the chart does not show that the late fee applies to four months' rent.
The chart shows that the unpaid fixed rent is owed for the period from April 2013 through May 2017. In his affidavit, Hargadon says that the same amount of unpaid fixed rent is for the period from April 2013 through January 2015. This same date discrepancy is found in regard to the late fee on the unpaid rent.
Defendant raises other reasons that plaintiff is not entitled to summary judgment on the rent arrears and late fees. Defendant submits evidence of CP's rent payments from May 2013 through July 2017. Copies of rent checks and certified mail return receipt labels show when payments were mailed. Defendant presents a factual issue concerning whether some payments were late. For instance, the proper amount of rent for May 2015 was mailed on April 30, 2015. While defendant's exhibit does not include the receipts showing when the mailing was received, there is a presumption that mail is received within five days of mailing (see Tofel v. Hubbard , 2017 WL 5175643, *3 n 2 [Sup Ct, NY County 2017] [about payments] ). Under the lease, such payment would not be regarded as late. Yet, plaintiff's exhibit 3 applies a late fee to it.
Hargadon testified that the late fees were compounded monthly. Defendant complains that the late fees are usurious. Defendant alleges that the late fees range from a low rate of 317% for May 2013 to a high rate of 836% for September 2014 (Siegel affidavit, ¶ 27, Himani affidavit, ¶ 29).
An interest rate exceeding 25% ( Penal Law § 190.40 ) or 16% ( General Obligations Law § 5-501 ) is usurious. Neither of these statutes, which are cited by defendant, apply to this case. Usury laws apply only to a loan of money or to forbearance of money ( Orix Credit Alliance, Inc. v. Northeastern Tech Excavating Corp ., 222 AD2d 796, 797-798 [3d Dept 1995] ; Transmedia Rest. Co. v. 33 E. 61st St. Rest. Corp., 184 Misc 2d 706, 710 [Sup Ct, NY County 2000] ). This case does not involve a loan or forbearance.
Nonetheless, as the First Department held in regard to a 365% per annum charge on late rent payments, "[T]he charge, while not technically interest, is unreasonable and confiscatory in nature and therefore unenforceable when examined in the light of the public policy expressed in Penal Law § 190.40, which makes an interest charge of more than 25% per annum a criminal offense" ( Sandra's Jewel Box v. 401 Hotel , 273 AD2d 1, 3 [1st Dept 2000], citing 943 Lexington Ave. v. Niarchos , 83 Misc 2d 803, 803—804 [1st Dept 1975] ; see also Cleo Realty Assocs., L.P. v. Papagiannakis , 151 AD3d 418, 419 [1st Dept 2017] ; Board of Mgrs. of Park Ave. Court Condo. v. Sandler, 48 Misc 3d 1230[A], 2015 NY Slip Op 51316[U] [Sup Ct, NY County 2015] ).
The Appellate Term of the First Department has stated that "where nonpayment of rent is at issue, the amount demanded should bear a reasonable relationship to the amount actually owed" ( IG Second Generation Partners, L.P. v. 166 Enters. Corp ., 2003 NY Slip Op 51218[U], *3 [App Term, 1st Dept 2003]; see also 650 Fifth Ave. Co. v. Travers Jewelers Corp., 29 Misc 3d 1215[A], 2010 NY Slip Op 51829[U], *2 [Civ Ct, NY County 2010] ). Defendant raises a question regarding whether the late fees charged on the rent arrears are unreasonably large and bear a reasonable relationship to the amount actually owed.
Compound interest may not be charged in the absence of an express agreement to pay compound interest; in such case the creditor is entitled to only simple interest ( R.F. Schiffmann Assocs., Inc. v. Baker & Daniels LLP , 147 AD3d 482, 483 [1st Dept 2017] [about late fees on invoices]; Rourke v. Fred H. Thomas Assoc., 216 AD2d 717, 718 [3d Dept 1995] [ditto] ). Hargadon testified that the lease allows for compound interest but does not identify any such lease provision. He may have been referring to the lease provision that if the tenant fails to pay rent or late fees, it has to pay a late fee on both kinds of monies. This fits the definition of compound interest, as "[I]nterest paid on both the principal and the previously accumulated interest" (Black's Law Dictionary [10th ed 2014 Westlaw] ). But the lease does not provide for monthly compounding. Moreover, even when the lease allows for compounded late fees, a question of fact may arise as to whether the provision is unconscionable ( Pivarsky v. Island Hills Golf Club, Inc., 2013 NY Slip Op 32662[U], *10 [ Sup Ct, Suffolk County 2013] ).
Regarding the water charges, Hargadon alleges that CP has its own water meter and that it never paid the meter fee for its water usage. Exhibit 4 is a chart showing the meter number, water charge invoice date, the date range covered by the invoice, the amount charged on the invoice, and the late fee. The chart shows that the water charges accrued from January 2011 through April 2017. The late fee on the water charge is 5% of the total water charges and is not compounded. Plaintiff includes copies of several invoices from the New York City Water Board. Not all of the amounts that plaintiff charges CP for water have a corresponding invoice and the invoices do not show the meter number that is purportedly CP's or otherwise provide any way to tell that the invoice relates to CP's water usage.
Ronald B. Siegel, CP's vice president of operations, states in his affidavit that CP never had its own meter and that the amount sought represents water usage by the entire building, not just CP. Plaintiff submits an affidavit by a plumber who attests that he shut down the meter allegedly belonging to CP, and tested it, and that the "lines and fixtures closed when the meter was shut down." It is not clear what this means and how the affiant can tell that the meter is "only feeding" CP. The existence of a water meter serving only CP's business is an issue of fact.
The taxes sought by plaintiff accrued from the base year in 2000 through to the base year in 2018. The late fees are not compounded. Siegel states that plaintiff billed it only once in June 2015 for $791.50 in taxes, which it paid in a timely fashion. Plaintiff does not show evidence that it billed CP. If CP was not billed for taxes, neither it, nor the guarantor, can be liable for late fees on taxes. In addition, plaintiff does not present copies of the tax bills or proof that the amounts sought are the amounts actually owed.
Plaintiff claims that the guarantor admitted that plaintiff's calculations are correct by failing to respond to plaintiff's notice to admit in a timely manner. The guarantor responded about three weeks late. While a failure to timely respond to a notice to admit constitutes an admission to its statements (see CPLR 3123 [a]; Kowalski v. Knox , 293 AD2d 892, 893 [3d Dept 2002] ), the disclosure device "is to be used only for disposing of uncontroverted questions of fact or those that are easily provable, not for the purpose of compelling admission of fundamental and material issues or ultimate facts that can only be resolved after a full trial" ( Meadowbrook-Richman, Inc. v. Cicchiello, 273 AD2d 6, 6 [1st Dept 2000] ). The notice to admit improperly addressed matters fundamental to this case that are in dispute. For that reason and because the answer was delayed for a short time, the court will not deem that defendant admitted to plaintiff's statements, and, thus, preclude a resolution of this action on its merits.
Regarding the part of plaintiff's motion to conform the pleadings to the proof, CPLR 3025 (c) authorizes the amendment of pleadings to correspond to the proof adduced at trial. The matter is discretionary for the court, but amendment should be freely allowed ( CPLR 3025 [c]; Dittmar Explosives, Inc. v. A. E. Ottaviano, Inc. , 20 NY2d 498, 502 [1967] ). The impediments to such authorization are delay in moving, surprise, and significant prejudice ( Murray v. City of New York , 43 NY2d 400, 405 [1977] ). These elements are not present here, and there is no reason that the pleadings should not be amended at trial, so that plaintiff may collect the proper amount owed by CP.
Regarding the part of the motion to dismiss the guarantor's affirmative defenses and counterclaims, that is granted. Paragraph 8 of the guaranty provides that the guarantor "absolutely, irrevocably, and unconditionally waives any and all rights it may have to assert any claim, defense, set-off, counterclaim or cross-claim whatsoever with respect to the obligations of any other party, including Tenant." A provision of a guaranty that the guarantor waives all defenses and counterclaims is valid ( Fortress Credit Corp. v. Hudson Yards, LLC, 78 AD3d 577, 577 [1st Dept 2010] ; Hotel 71 Mezz Lender LLC v. Mitchell , 63 AD3d 447, 448 [1st Dept 2009] ). However, the waiver does not apply to allegedly unconscionable claims based on usury or preclude objections to demands for rent not based on provisions in the guaranty or the lease.
In regard to the guarantor's motion to dismiss the complaint, the guarantor does not show that CP does not owe the plaintiff rent, water charges, taxes, and late fees corresponding to those items. The exhibit showing that CP made rent payments fails to account for every month that rent should have been paid and shows that many payments were not in the lease amount and that some payments were mailed late.
In his affidavit, the guarantor argues that process was not properly served. The process server swore that he gave process to a "Ms. Himani." The guarantor states that the process server's definition of the woman to whom he gave the papers does not match the description of the only woman who resides at the guarantor's house, his wife.
CPLR 3211 (e) provides that an objection of improper service is waived if having raised such an objection in a pleading the party does not move for judgment on that ground within 60 days after service of the pleading ( Wiebusch v. Bethany Mem. Reform Church , 9 AD3d 315 [1st Dept 2004] ). The guarantor did not move within 60 days. In addition, conclusory assertions of improper service are insufficient to rebut the presumption of proper service (see Deutsche Bank Natl. Trust Co. v. White, 110 AD3d 759, 760 [2d Dept 2013] ).
The guarantor complains that notices required in summary nonpayment proceedings were not served on him. Those notices are not required in this plenary action.
Neither side lays a proper foundation for the introduction of evidence. Plaintiff's exhibits showing the amounts owed and defendant's exhibits showing the rents paid were prepared for litigation. Exhibits prepared for litigation which are not maintained in the regular course of business are not competent evidence ( CPLR 4518 [a]; City of New York v. State of New York, 27 AD3d 1, 9 [2005] ; National States Elec. Corp. v. LFO Constr. Corp., 203 AD2d 49, 50 [1st Dept 1994] ). Neither Hargadon, nor Siegel, sufficiently attests that he is personally familiar with the record-keeping practices and procedures of the party for which he speaks and is competent to testify about them (see Viviane Etienne Med. Care, P.C. v. Country-Wide Ins. Co. , 25 NY3d 498, 503 [2015] ; Wells Fargo Bank, N.A. v. Talley , 153 AD3d 583, 585 [2d Dept 2017] ).
To conclude, it is hereby
ORDERED that defendant's motion for summary judgment dismissing the complaint is denied (motion sequence number 008); and it is further
ORDERED that the part of plaintiff's motion for leave to amend the pleadings to the proof is granted, and the part of plaintiff's motion for summary judgment dismissing defendant's counterclaims and affirmative defenses is granted and said motion is otherwise denied (motion sequence number 009).
No costs.